Latest Obamacare Delay Is Probably Illegal

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read More.

The Barack Obama administration recently announced that it is going to delay the Patient Protection and Affordable Care Act's employer mandate for medium-size companies and reduce the requirements for larger businesses. Again? What does it all mean?! Here's what you need to know:

-- This is mostly about "affordability" and compliance, not coverage. Employers with 50 to 99 employees are still covered by the mandate, but they get a year -- until 2016 -- to comply. Employers with more than 100 workers have to offer affordable insurance to only 70 percent of their workforce, instead of the 95 percent mandated for 2016. But according to the Kaiser Family Foundation, virtually all companies with more than 200 employees already offer insurance to their employees, as do somewhere from 85 percent to 90 percent of employers with 50 to 99 workers.

In other words, the employer mandate was never going to substantially increase the number of people who are offered insurance by their employers. Instead, it changes what their employers can offer them by mandating benefits and requiring that it cost no more than 10 percent of an employee's salary.

So the administration is not trying to buy strapped employers more time to cover their employees. More likely, it is still struggling to set up the compliance systems that will allow medium employers to certify that they have met the mandate's requirements, or it is worried about adverse impacts -- expensive changes to benefit plans, or employers who downsize to avoid the mandate -- ahead of the 2014 elections.

-- The delay is probably illegal. Law professor Jonathan Adler argues in the Washington Post that this latest delay -- which comes just six months after the administration delayed the employer mandate the first time -- clearly violates existing legal precedent:

Whatever the stated reason for the new delay, it is illegal. The text of the PPACA is quite clear. The text of the Patient Protection and Affordable Care Act provides that the employer mandate provisions 'shall apply' after December 31, 2013. The Treasury Department claims that it has broad authority to offer 'transition relief' in implementing the law. That may often be true, but not here. The language of the statute is clear, and it is well established that when Congress enacts explicit deadlines into federal statutes, without also providing authority to waive or delay such deadlines, federal agencies are obligated to stay on schedule. So, for instance, federal courts routinely force the Environmental Protection Agency to act when it misses deadlines and environmentalist groups file suit.

-- That doesn't mean that the courts are going to step in. Courts don't just swoop down and body-check the executive branch or Congress every time one of them oversteps its constitutional powers. They wait for someone to sue. And in order to sue, you need to have legal standing, which, Adler points out, no one seems to. It's not enough to say that your taxes will be higher, or your government measurably less constitutional, because of the government's actions. You need to prove that you have been substantially harmed, and it's not clear that anyone can.

-- Earlier projections from the Congressional Budget Office suggest that this will significantly increase the cost of the law. In 2009, the CBO scored an early version of the proposed health-care law that didn't have an employer mandate. Then it added one in, and that turned out to make a huge difference in the CBO's projections, as my colleague, Ezra Klein, wrote in the Washington Post in July 2009:

The importance of this set of numbers can be understood only in terms of the catastrophe that was the last set of numbers. On June 15, the Congressional Budget Office scored an incomplete version of this bill. The office estimated that it would cost $1 trillion over 10 years and cover 16 million people. It would've cost, in other words, 70 percent more and covered 20 percent fewer people. The big question, then, is what accounts for the change? And luckily, there's a simple answer: the employer mandate.

The June 15th proposal didn't include an employer mandate. And without one, the news was grim: Employers would drop coverage for 15 million employees and send them to the Health Insurance Exchange where they would need government subsidies to afford health insurance. That meant costs exploded and coverage contracted. Health reform looked like a bum deal.

But oh, what a difference a mandate makes: The new version of the HELP bill includes an employer mandate for firms with more than 25 workers. Every full-time worker who isn't given health-care coverage triggers a penalty of $750. Every part-time employee not given coverage costs $375. Doesn't seem like very much, does it? But it's enough. In Massachusetts, the employer mandate has been a success with a piddling $295 penalty. Indeed, the evidence we have suggests that the small penalty creates a massive change in behavior.

-- That doesn't mean that the CBO is going to change its score much. The delay is temporary. You can argue -- and I might -- that the successive delays make it unlikely that the employer mandate will ever be fully implemented. But the CBO scores the law as written, not the law as it is likely to actually end up.

For years now, everyone has recognized that Medicare's sustainable growth rate -- a provision that automatically slashes doctor reimbursements if costs grow too quickly -- was never going to actually be allowed to go into effect. The cuts required are just too deep -- almost 25 percent at this point. Every year, Congress passes a "doc fix" -- just temporary, of course! -- rather than let this happen. But so far, they've been unable to pass a permanent fix, because in order to do so, they need to find $150 billion to fund it. So every year, the CBO issues budget projections that assume the sustainable growth rate will finally be allowed to take effect.

As long as the employer mandate delay is temporary, it will show up in CBO projections as just a small cost to the government -- even if it becomes apparent that it's too politically toxic to ever actually let that happen. If it becomes clear that smaller businesses are effectively exempt from the mandate, employers may start dumping covered employees onto the exchanges. But that won't show up in CBO projections until Congress actually changes the law.

-- The administration still lacks the political will to inflict any painful changes, which puts the whole system at risk. We've been talking about this for a while here: Obamacare is a complex system that was designed to work (or not) as a system. If you start pulling pieces out, the whole thing may break down, like trying to run your car without the engine.

Unfortunately, some people are going to dislike the changes. It's easy to understand why Obama wanted to tell voters that anyone who liked their plan or their doctor could keep them, and he's not exactly the first politician to take some poetic license about the downsides of a policy proposal. But this was never possible. For the system to work, some people had to pay more, get fewer benefits or possibly both.

Ultimately, if Obamacare is going to hang together and not break down into an expensive mess, the administration is going to have to force some people to take unpleasant medicine. Until it demonstrates that it is willing to do so, the law and the insurance market remain at risk.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

(Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.)

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read more